U.S. oil prices edge up as market eyes tighter supply

Andrew Cummings
February 7, 2019

There is ample spare capacity in other oil producers and strategic reserves to compensate for a loss of Venezuela's crude exports, helping explain the tepid reaction of global oil prices to US sanctions announced a week ago.

Crude inventories rose by 2.5 million barrels in the week ended February 1 to 448.2 million, compared with analysts' expectations for an increase of 2.2 million barrels.

Crude oil prices had shot up by 7% within a week of the USA declaring sanctions on Venezuela on Jan 28.

US crude futures were down 50 cents, or 0.9 percent, at $54.06 a barrel by 1400 GMT.

US government data on Wednesday showed that domestic crude inventories rose less than expected last week even as refineries hiked output.

USA oil imports from Opec countries have dropped to five-year lows as the oil producing cartel cuts output, while U.S. domestic production grows.


Brent crude, the global benchmark, was trading below $63 a barrel on Tuesday compared to $61 on January 29, the day after the United States imposed sanctions on Venezuelan state oil firm PDVSA.

A report published by the US Energy Information Administration (EIA) last week showed that the country's oil production averaged a record 11.9 million barrels a day in November, up 345,000 from October and up almost 1.8 million compared with November 2017's average figures.

Analysts said U.S. sanctions on Venezuela had focused market attention on tighter global supplies.

"Distillate demand increased sharply last week due to the extreme cold weather, which contributed to the declining distillate stocks", Commerzbank analyst Carsten Fritsch said.

USA energy firms last week cut the number of oil rigs operating to their lowest in eight months as some drillers followed through on plans to spend less on new wells this year.

In an interview aired by private broadcaster Televen, Manuel Quevedo, also president of the oil company, commented on USA sanctions imposed last week on PDVSA and its US subsidiary Citgo.


Taking control of oil revenues - the basis of Venezuela's economy - from Maduro and giving it to Guaido, and the decision to sanction oil companies, is the boldest US move so far to raise pressure on Maduro.

WTI futures were at 54.65 dollars per barrel at 0810 GMT, up nine cents or 0.16 per cent.

The global economic outlook and prospects for growth in fuel demand have been clouded by poor economic data in China and US-China trade tensions. US Treasury Secretary Steven Mnuchin told reporters that by blocking PDVSA's assets, the United States was preserving the assets of the company in the interests of the people of Venezuela and also protecting its own market.

With a nervous market, traders are focused on the US State of the Union address by President Donald Trump.

Senior U.S. and Chinese officials are poised to start another round of trade talks next week.


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